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The Jews of North America give generously to their brethren and to Israel, and many of them do so via their local Jewish federation. However, commonly, a Jewish community foundation operates alongside the federation. These community foundations are independent nonprofit entities, with assets and endowments worth billions of dollars. But why exactly do they exist?

Generally speaking, foundations and federations are structured to protect their assets, but Haaretz also found, for example, that in MetroWest, New Jersey, Omaha, Nebraska, and Orange County, California, community foundations support Israeli settlements, while the associated federations do not.

The Jewish Federations: Money coming in, and going out

Click here to access all the Federations' 990 tax forms (Return of Organization Exempt From Income Tax), broken down by state and city.

Since much support for the federations and foundations comes from individual donors in the local community, how they manage and allocate finances is worth understanding, especially as donations to foundations and federations are tax-deductible. The more you donate to them, the less you have to pay the IRS.

Share and share alike

The entire purpose of community foundations is to operate “for the benefit of, to perform the functions of, or to carry out the purposes of the Federation,” says Daniel Odrezin, former assistant executive director at the Jewish Federation of Birmingham.

Community foundations and the organizations they support may share board members, employees, office space, and payroll services. They may exchange millions of dollars a year. Siloing assets at separate, supporting foundations protects organizations from liability and their endowments from risk.

The rationale proffered for creating foundations with separate identities from the federations is to protect endowment assets in the case of catastrophic event, such as a sexual harassment lawsuit, explains Richard L. Wexler, former chairman of the United Israel Appeal and a vocal critic of JFNA. (A key player in American Jewish philanthropy, Wexler held an unofficial seat on JFNA’s executive board until 2008, then the United Jewish Communities, when, according to the Jewish Telegraphic Agency, he was “uninvited” from further meetings. Wexler told the Forward that his removal from the executive committee was because of his blog, UJ Thee And Me.

Most federations buy insurance against catastrophe, but even so, in more and more communities, separately incorporated foundations have become the norm. "And in most of those communities,” Wexler wrote by email to Haaretz, “there is (1) no alignment of foundation and federation objectives; and (2) notwithstanding that the Boards of both federation and foundation largely overlap, there is widespread ‘competition’ between the two to the benefit of neither.”

The federations and community foundations may reimburse each other for services. “The point of a supporting organization is to support,” says John Bradley, an adjunct professor at the University of Pennsylvania Law School. “Money should flow from one to the other. But as part of the rationale for why supporting organizations get tax-exempt status — they need to give up some control of their own organization to the supported organization.”

That means that sharing employees and assets is okay. But multiple organizations that extensively share funds, employees and directors beg the question just who is in control, cui bono, and why the organizations are separate at all.

As an example of unusual conduct, from 2013 to 2015, the Detroit Jewish Federation gave over $10.5 million to the Detroit Jewish Foundation, more than 30 percent of the total grants it distributed over the same period, for local programs such as Jewish education, camping, identity building and elder care, causes that the federation itself also supports. In turn, the Foundation “holds the real estate and endowment funds that support the Jewish community.” The information appears in their 990 tax forms.

Asked about this distribution, Bradley told Haaretz “I definitely paused and went ‘Wait, really?’ Because, like you say, the money would be set up to flow the other way...I don’t know the answer as to whether that is allowable or not.”

“The Jewish Federation of Metropolitan Detroit (JFMD) and the United Jewish Foundation (UJF) are two separate not-for-profit corporations. Both are public charities under Section 509(a) of the Internal Revenue code,” wrote Benjamin F. Rosenthal, President, United Jewish Foundation of Metropolitan Detroit “JFMD raises and distributes funds to assist vulnerable populations and to build community, consistent with its mission. UJF is a related organization to the Jewish Federation of Metropolitan Detroit. UJF holds the real estate and endowment funds that support the Jewish community. The payments listed are distributions from JFMD’s Annual Campaign, recommended by the JFMD Planning and Allocations Steering Committee and then approved by the JFMD Board of Governors. The distributions provided funding for specific programs that address local needs, including Jewish education, camping experiences, identity-building and continuity in our community, elder care and providing a safety net for our vulnerable populations.”

“Every nonprofit has to operate for the purpose for which it’s formed,” says Lisa Runquist, an L.A.-based attorney specializing in nonprofit law. “So, if money is going from one entity to another, it has to be determined that it’s advancing the purpose for which the organization was formed.”

Detroit states its purpose somewhat vaguely, as do many nonprofits. Its description in its 990 form (returns of organizations exempt from income tax) reads, “take care of the needs of the Jewish people and build a vibrant Jewish future, in Detroit, in Israel, and around the world.”

In theory, sending funds to an affiliated community foundation would align with those goals.

Would the money funneled between federations and foundations be better spent in direct allocations to community organizations unaffiliated with the federations?

“There isn’t a requirement that [money] go one way or another,” Runquist says. “The board has to determine if that’s the best way to achieve the results they’re trying to achieve.” If the goal is to enrich the federations and their endowments, this may very well be the best way to achieve it.

Reporting for this story was supported by a grant from the Pulitzer Center on Crisis Reporting. Uri Blau contributed to the research.

Haaretz.com, the online edition of Haaretz Newspaper in Israel, and analysis from Israel and the Middle East. Haaretz.com provides extensive and in-depth coverage of Israel, the Jewish World and the Middle East, including defense, diplomacy, the Arab-Israeli conflict, the peace process, Israeli politics, Jerusalem affairs, international relations, Iran, Iraq, Syria, Lebanon, the Palestinian Authority, the West Bank and the Gaza Strip, the Israeli business world and Jewish life in Israel and the Diaspora.